Ummm no. Not exactly anyways.
The quality issues are actually underlying issues with the limitations of .WMV format (.dvr-ms is just a slightly modified version).
Using ANY OTHER PVR/DVR software (i.e. WINFAST PVR), I get PHENOMENAL results. Using Windows media encoder or the Media Centre Edition software, the video quality is quite poor in comparison. You also lack the capability to adjust bit rates, frame rates, etc... On top of those issues, once you record a show, you cannot burn it to DVD (and if you use a file converter to convert to MPEG, you'll see what I mean by poor quality). MCE also has built in copyright enforcement. This means if you record an HBO show, you cannot play it elsewhere due to the "protected content" signal that is embedding in the video header.
You are correct that it is BASED on Windows XP Pro, however the option to join a domain is "locked out". There is a workaround for it, but in doing so, Microsoft will never provide support.
I am currently using the MCE software strictly for watching low quality (Standard) TV and for some recordings that I do not care to burn to DVD. For shows and movies that I rip directly from TMN/TMNOD/VOD(Rogers)/and PPV - I use Winfast PVR and it gets me DVD quality rips.
I am currently using a reasonably high end machine with a Radeon 9800 XT @ 450/400 with a custom made 56CFM x 2 fan based cooling device in conjunction with a modified factory heatsink.
I am going to upgrade my system soon, and when I do, I am going to implement an interconnected phase change solution that I started developing last year. Can you say 6Ghz @ subzero?
Hopefully I'll have time to finish it soon.
Oh - and my system produces less noise than a supermodel farting in a crowded elevator.